Taxpayers face long waits, conflicting information when trying to recover from identity theft

Eileen Ambrose, The Baltimore Sun

Tom Morgan tried to file his federal tax return electronically this year, but he kept getting an error message that advised him to double-check his Social Security number.

Morgan thought the problem was a transposed digit or some minor glitch on the IRS' end, something he has experienced before.

"It was a very generic error message," he says. "No urgency, no 'You're in big trouble now.'"

Morgan says he didn't know until reading my column a couple of weeks ago that taxpayers receive this message after a thief has used their identity to file a bogus tax return and collect a refund.

"I nearly fell out of my chair," says the 42-year-old project manager who lives in Selbyville, Del., near the Maryland line.

Identity thieves have been filing fake federal returns for years, but it's now reaching epidemic proportions. In a recent speech, IRS Deputy Commissioner Steven Miller said that 2.6 million returns filed this year were under review for ID fraud. The agency also expects to spend $330 million in 2012 to fight the problem.

If you're one of the many taxpayers whose Social Security number has been stolen, you first will have to prove your identity to the IRS. Until then, your refund will be on hold. The next step will be to make sure that the criminal isn't doing further damage to your finances.

Victims who face foreclosure or eviction because of a delayed refund will have their cases expedited and can receive their money within a few weeks. But for most victims, it can be many months — and much frustration — before the problem is cleared up.

"Every time I call, someone at the IRS tells me something different," says Christie Bickelman, a Florida substitute teacher who says a thief recently filed two returns for different years using her husband's information.

One IRS worker told her she would receive an Identity Protection Personal Identification Number to use when filing a return, Bickelman says. But the next IRS representative said that wasn't the case at all.

Morgan says every time he calls the IRS he has to answer the same questions to verify his identity. "It takes 25 minutes to get to the heart of the matter," he says. "I wish we could establish a code word."

Victims complain that they get too little information from the IRS.

Bickelman says she found out about the fraud in April, but the IRS told her not to contact the agency again before July.

"Right now, they have nothing to tell us," she says. "We are in limbo."

Victims often say they have no idea how thieves got their Social Security numbers, but filching them isn't difficult. And with a number, a thief can make up W-2 information, submit a return before the legitimate taxpayer files and receive a refund directly deposited on a debit card.

Meanwhile, the IRS is under pressure to turn out refunds as soon as possible — even before the agency receives W-2s.

That's because employers must provide W-2s to workers by the end of January, but they have until late March when filing electronically to get the forms into the government's hands. Social Security, which tracks earnings, gets first crack at W-2s, and then sends the information to the IRS. By then, a thief could already have spent the refund.

Nina Olson, the national taxpayer advocate, told Congress last month that ID fraud could be prevented by maintaining the April 15th tax deadline, but postponing refunds until the summer when the IRS has the information needed to spot fraud. She concedes that this would be a tough transition for Americans who rely on refunds in February or March.

Pat Caralle, 50, was counting on his refund this year but found out recently he might not see his money for several months because a thief filed a return using his information.

Caralle, who works as a general foreman in Baltimore and lives in Pennsylvania, uses tax withholdings as a way to save. He even had extra money withheld from his paycheck to generate a bigger refund this year. He anticipated receiving $7,765 and went ahead with plans to add a deck to his house.

"It can be until next tax season before I get my money," says Caralle, adding he might have to dip into savings.

Caralle took his mortgage papers, car title, Social Security card, driver's license and employee ID badge to an IRS office to prove his identity. He's mad at the agency. "If I can prove who I am without a doubt, release my money," he says.

The IRS says it is often the first to discover the fraud and will contact taxpayers. If you haven't heard from the IRS and suspect you're a victim, call the agency's Identity Protection Specialized Unit at 1-800-908-4490.

You will have to fill out a Form 14039 — an identity theft affidavit — and submit proof of identity to the IRS.

Cases in which a delayed refund means severe financial consequences — foreclosure, eviction, car repossession or utilities being shut off — are handled by the local offices for the National Taxpayer Advocate, says James P. Leith, the taxpayer advocate for Maryland.

Leith's office has handled 355 such cases since October.

They take top priority within the IRS, Leith says, and his office can get a refund within a few weeks. It generally takes nearly five months, though, to clear up the taxpayer's record.

Maryland ID theft victims in these dire situations can seek help from the taxpayer advocate at 410-962-2082.

Victims should also notify the three major credit bureaus — Experian, Equifax and TransUnion — and review their credit reports for suspicious activity.

Also, put a fraud alert on the reports, which warns creditors that they should dig deeper into anyone seeking a new account using your information. Alerts last only 90 days and must be renewed. You can get a seven-year fraud alert if you submit a police report of the identity theft, says Nikki Junker, a victim adviser with the Identity Theft Resource Center.

Freezing your credit reports is the best protection against new account fraud. With a freeze, new creditors can't see your file, so they won't open accounts. You will have to lift the freeze, which can take a few days, when you want a creditor or others to view your report.

Junker says victims might want to check their work history on file with the Social Security Administration to make sure a thief isn't using their number to secure employment. She also advises filing a police report, which gives victims a document that acknowledges the theft.

The IRS suggests filing a complaint with the Federal Trade Commission, which maintains a national database on ID theft that is available to law enforcement. The FTC provides counseling to victims on how to protect themselves at 1-877-IDTheft.

"Once your Social is out there, it is a lifelong problem," Junker says.

Leith, the Maryland taxpayer advocate, offers some comfort. As far as returns go, he says, ID victims should be affected only one tax season.